Offshore Contractor Saipem to Cut 8,800 Staff After Unexpected Loss

Statoil suspended its contract for Saipem’s Scareboro 5 drilling rig in July due to overcapacity. Photo: Statoil

By Marco Bertacche and Dan Liefgreen

(Bloomberg) — Saipem SpA, Italy’s biggest oil and gas contractor, will cut jobs and exit businesses as writedowns led to an unexpected loss and an earnings target reduction.

The company, controlled by Italian oil producer Eni SpA, posted a second-quarter net loss of 997 million euros ($1.1 billion), after total writedowns of assets for 929 million euros. Analysts were expecting a 39.1 million-euro profit.

“The further steep fall in the oil price has resulted in a major disruption, which is not likely to be reversed in the short-to-medium term,” Chief Executive Officer Stefano Cao, who replaced Umberto Vergine in April, said in a statement. This “has resulted in clients taking an increasingly rigid approach in the operational and commercial management of contracts.”

Saipem expects a loss before interest and taxes of 450 million euros in 2015, compared with a previous forecast of as much as 700 million euros in profit. That marks at least the third time the company lowered its guidance since 2013 and comes after PJSC Gazprom canceled a $2.2 billion Black Sea project earlier this month.

Saipem plans 1.3 billion euros of savings through 2017, including a workforce reduction of 8,800 people. The company will exit businesses, downsize its presence in Brazil and Canada, where lower-margin contracts led to previous target cuts, and scrap five vessels. It forecasts a net loss this year of 800 million euros.

Net debt rose to 5.53 billion euros at the end of June. Chief Financial Officer Alberto Chiarini said the sale of bonds or shares are options to cut debt, during a conference call with analysts.